The Cost Of The Renewable Energy Standard In New Mexico

Commentary: In the Land of Enchantment, government mandates require that 15.7 percent of electricity must come from wind, solar, and other forms of renewable energy by 2021. The state is already half way to achieving its goal.

Unfortunately, because “renewable” forms of energy are more costly and less efficient, state governments eager to be seen as “green” had to make their use by utility companies mandatory. In other words, utility companies and ratepayers have no choice but to comply with these laws, known as renewable portfolio standards or RPS.

But there’s a catch. According to my new study published by the Rio Grande Foundation, New Mexico's 15.7 percent RPS will increase state electricity prices by nearly 7 percent in 2020. Already, residential electricity prices are 29 percent higher in states with mandatory RPS than in states without them, according to data from the Energy Information Administration. It’s not surprising then, that many states are facing blowback relating to their RPS's.

At the end of May, Maryland Gov. Larry Hogan vetoed a bill to raise his state’s RPS from 20 to 25 percent, noting he couldn’t support the soaring costs. Last year, West Virginia and Kansas completely repealed their RPS's. And the year before that, Ohio hit the pause button on its RPS. In numerous statehouses, legislation has been proposed to either cut RPS or scrap the mandates completely.

With the soaring electricity prices associated with RPS, this shouldn’t come as a surprise. According to the Brookings Institute, wind power is twice as expensive as conventional power, and solar power is three times as expensive. These higher energy costs are passed on to electrical ratepayers, depressing economic output and disproportionately hurting the poor, who spend a larger fraction of their incomes on electricity.

My new RPS research sheds more light on the degree and scope of these costs and explains how they impact various states differently. Understandably, I find that states with moderate RPS goals experience moderate rate increases, while states with ambitious RPS goals experience more significant rate increases.

The economic costs associated with RPS go beyond heftier electricity bills for ratepayers. Since energy is an essential factor of production and consumption activities, businesses pass along higher rates in the form of higher prices for customers.

As a result, net economic output in states with RPS's is reduced – often by billions of dollars. Our study concludes that New Mexico's 15.7 percent RPS will reduce its economic output by $444 million in 2020. In neighboring Utah, the state’s 20 percent RPS leads to a $1.4 billion reduction in economic output in the same year.

Finally, we know that less economic output means fewer jobs. We anticipate RPS to cost thousands of jobs per state, varying based on each state’s unique labor market. For New Mexico, we estimate that RPS will cost our state nearly 3,500 jobs in 2020.

While the RPS does create some jobs in building and maintaining solar, wind, and other renewable capacity, these job gains are dwarfed by the job losses caused by reduced economic output.

RPS's are beneficial insofar as they reduce carbon dioxide emissions. But these benefits come at a high cost of between $60 and $80 per ton on average across the 12 states my study analyzed. This is a far higher price than the social cost of carbon estimated by the federal government.

Reducing carbon emissions in New Mexico and throughout the U.S. is a worthy goal. But how great a price is the Land of Enchantment willing to pay? As my research shows and numerous states are recognizing, removing the next ton of carbon from the atmosphere outweighs the benefits. It is essential for our leaders in Santa Fe to consider such cost-benefit analyses when crafting policy, in spite of what radical environmentalist have led many to believe.

Timothy J. Considine is professor of energy economics at the University of Wyoming.